Caterpillar Bulldozes Tax Code Like Apple, Google & Facebook, Senators Allege

Apr 1 2014, 7:02pm CDT | by

Caterpillar Bulldozes Tax Code Like Apple, Google & Facebook, Senators Allege
Photo Credit: Forbes Apple

Caterpillar sidestepped $2.4 billion in U.S. taxes over 13 years by shifting profits to Switzerland, claims a report by the Senate Permanent Subcommittee on Investigation. Senator Carl Levin (D-MI) grilled execs and PricewaterhouseCoopers accountants over Caterpillar’s offshore move of 85% of its parts sales. Most of Caterpillar’s parts business remains in the U.S., including employees and execs, the report says. Only 65 of over 8,000 parts employees are in Switzerland, claims Sen. Levin, noting that “nothing changed in the operations.”

Sen. Levin called it a sweetheart “tax deal pure and simple to shift profits between related parties.” But Caterpillar V.P. Julie Lagacy defended the deal saying it was legit. This echoes others who have appeared before Levin, including Apple CEO Tim Cook. The biggest surprise of the hearing was the Republican pushback defending Caterpillar and noting that the tax code was to blame.

In fact, Sen. Rand Paul, R-Ky., went so far as to suggest that Caterpillar deserved an award, not an inquisition. Sen. Paul said Caterpillar and its accountants have an obligation to shareholders to minimize their taxes. The hearing was perhaps most uncomfortable for the accountants asked about emails that seemed to poke fun at the fact that they might be retired by the time of an audit.

Nevertheless, there was nothing definitive in the hearing, other than that taxes are terribly complex, and that multinational companies can and do try to move things around to save. Apple’s Tim Cook testified to the same effect, though without the Republican support Caterpillar mustered.

Individuals may scratch their heads at how U.S. multinational companies manage to plop profits offshore. After all, the Swiss banking scandals since 2008 make it clear that for individuals, everything is income worldwide. Multinational companies are different, and even “stateless” income is possible.

Yet Sen. Levin and others would like to see more harmony in the tax code and a tightening of this “stateless” income. Tax havens like Ireland are favored by global giants like Apple, Google, HP, Facebook and Twitter. In May 2013, the Senate Permanent Subcommittee on Investigations said Apple avoided $9 billion in U.S. taxes in 2012 alone via offshore units with no tax home. Apple’s CEO Tim Cook testified it was nothing illegal.

Calling it the “holy grail of tax avoidance,” Sen. Levin claimed that Apple saved billions by claiming companies registered in Ireland are not tax resident in any country. Even Facebook flipped more than $700 million to the Cayman Islands as part of a “Double Irish” tax reduction strategy. Google used the Double Irish and the Dutch Sandwich, saving billions in U.S. taxes. No, these aren’t food products.

The Double Irish involves forming a pair of Irish companies to transform payments on intellectual property into tax-deductible royalty payments. Google and Microsoft cut their overseas tax rates to single digits with Dublin-registered subsidiaries designated as tax resident in Bermuda. Google and Apple have Irish-registered and tax resident subsidiaries that make sales to customers.

Global companies like Apple, Starbucks and Hewlett-Packard put income in foreign pockets in ways the IRS doesn’t like. And the IRS isn’t alone in its criticism. The G20 countries and the Organization for Economic Co-operation and Development (OECD) call it tax manipulation. The OECD, which advises the G20 on tax and economic policy, says existing national tax enforcement regimes just don’t work.

The OECD plan claims that companies like Apple and Google avoid billions in taxes. The G20 is made up of 19 leading world economies plus the European Union. It too has voiced support for a fundamental reassessment of the rules on taxing multinationals. And in a sense, the Republicans defending Caterpillar are right that the U.S. tax code seems to encourage all this behavior.

Some companies say they would like nothing better than repatriating profits to the U.S. if they could only do it in a way that won’t be taxed. The amounts at stake are staggering. U.S. companies are said to have more than $1.5 trillion offshore. Most claim that they must keep the money there to avoid the taxes they would face by bringing it back to the U.S.

“We must address the persistent issue of ‘stateless income,’ which undermines confidence in our tax system at all levels,” U.S. Treasury Secretary Jack Lew has said. Sadly, retooling the law, even if there were agreement in Congress, will take time. Meanwhile, despite the hearings and theatrics, little seems likely to change.

You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Source: Forbes Apple

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

New iPads and OS X Yosemite Reportedly Releasing in October 2014
New iPads and OS X Yosemite Reportedly Releasing in October 2014
Apple is rumored to introduce the new devices at a special event in the mid-October
 
 
Jony Ive Talks about the Designing Difficulties of the Apple Watch
Jony Ive Talks about the Designing Difficulties of the Apple Watch
The leader of Apple’s designing department talks about working with the next generation smartwatch
 
 
The Release of the Apple Health Kit Apps Delayed due to the Bugs
The Release of the Apple Health Kit Apps Delayed due to the Bugs
Apple informs that the launch of the Health Kit apps will not take place today, as it discovers a bug in the system
 
 
Indian-origin researcher develops new quality control system
London, Sep 18 (IANS) An Indian-origin researcher Mitul Tailor from the Loughborough University in Britain has developed a computer software system that can be used in quality control in virtually any industry -- from car and aerospace to beauty treatments.
 
 
 

Latest from the Network

13 killed in bomb attacks in Iraq
Baghdad, Sep 19 (IANS) At least 13 people were killed in two suicide bomb attacks in the Iraqi capital of Baghdad Thursday evening, a police source said. A suicide bomber drove an explosive-laden car into a checkpoint...
Read more on Politics Balla
 
Scottish referendum polls end, huge turnout reported
London, Sep 19 (IANS) Polling in the referendum to decide whether Scotland should stay in the UK or become an independent country have closed and counting is under way, BBC reported. Counting will be carried out...
Read more on Politics Balla
 
Parliamentarians urges EU to cut off IS resources
Brussels, Sep 19 (IANS) The European Parliament Thursday urged the European Union (EU) to enforce sanctions against business bodies related to the Islamic State (IS) in a bid to cut off its resources. The creation and...
Read more on Politics Balla
 
Sharon Osbourne slit her wrist to prove love
Los Angeles, Sep 19 (IANS) TV host Sharon Osbourne says, back in her rocker girl days, she slit her wrist to prove her love for Ozzy Osbourne. The 61-year-old star has revealed she was hospitalised after cutting...
Read more on Celebrity Balla
 
Ebola hit countries to lose $809 million by 2015: World Bank
This projected loss will be the medium-term impact of the outbreak of the Ebola Virus Disease (EVD) on these countries, Xinhua reported. A statement issued from the World Bank's Ghana office responsible for both...
Read more on Business Balla
 
Russian food ban deals blow to Austrian pork farmers
Vienna, Sep 19 (IANS) Russian import ban imposed in retaliation for Western sanctions over the Ukraine crisis brought down the price of pork in Austria, affecting the farmers in the country. Alarm is growing among...
Read more on Business Balla
 
Nigerian troops capture Boko Haram leader
Abuja, Sep 19 (IANS) Nigeria army have arrested a senior commander of the Boko Haram sect, which is blamed for killing hundreds of people since 2009, the country's defence authority said Thursday. The commander, whose...
Read more on Politics Balla
 
Iggy Azalea sues ex-boyfriend
Los Angeles, Sep 19 (IANS) Rapper Iggy Azalea has filed a lawsuit against her ex-boyfriend. Azalea is suing her ex-lover Maurice Williams for releasing music from her early career without her consent, reports...
Read more on Celebrity Balla
 
Will Smith and Jada Pinkett Smith have garden dates
Will Smith and Jada Pinkett Smith prefer to have date nights at home. The couple, who got married in 1997, believe it's important to spend some time alone with one another in order to keep their romance alive, but they...
Read more on Celebrity Balla
 
Kylie Jenner 'living in shadows' of sister Kendall
Kylie Jenner reportedly feels she's ''living in the shadows'' of her sister Kendall. The 17-year-old star is allegedly starting to feel left out following her older sibling's recent modeling success and believes she's...
Read more on Celebrity Balla